Student Loan Forgiveness: Why Critics Say It Won’t Work
A college graduate without student loan debt is like catching a glimpse of a white whale in the ocean; needless to say, it’s a rare occurrence. In the past eight years, student loan debt has nearly tripled to $1.1 trillion. It has gotten so bad that the New York Fed economists warned last month that the burden of debt could affect consumer spending by 20-somethings, as well as further hamper the recovery of the housing market and economy.
However, billions of dollars in student loans could be forgiven over the next decade under a proposal in President Barack Obama’s budget to expand the program’s income-based repayment system.
Student advocates are enthusiastic over the prospect. However, critics complain the expansion could extend a program that already encourages young people to borrow too much money and leave taxpayers with their college bills. They also say forgiving debt gives a “taxpayer gift” to people who need it the least, such as attorneys, doctors and other white-collar people with graduate degrees.
According to a report from McKinsey & Company, nearly half of America’s recent graduates say they are working in a job that doesn’t require a college degree. Instead they are working as waiters, taxi drivers or some other occupation that does not require a college education. The number in minimum wage jobs has doubled since 2007.
One reason is the slow growth of the economy and the tough job market. But another reason that many critics are point out is too few college students choose tough majors like nursing, engineering and accounting that enjoy a robust demand for graduates. Instead, many students opt for liberal arts subjects, such as politics and history, which in turn leaves them with few practical skills for the working world.
President Obama’s proposal, “Pay as You Earn,” which came last year, would forgive billions in student debt with federal dollars. Borrowers in the program would make payments equal to 10% of their monthly income, after rent and basic living expenses, and after 20-years of on-time payments would be forgiven of all debt regardless of how much they had borrowed.
Critics say what the program fails to account for is that debt forgiveness simply encourages young people and parents to make poor choices, including borrowing too much. They say it will also embolden colleges to keep pushing up tuition and doesn’t help graduates find jobs.
What critics of the proposal would like to see is a push for educational institutions to require professors to teach more on subjects that are truly useful in the workplace as well as redirecting more of what the nation spends on education into other channels of vocational training.
Do you agree with the critics? What’s your take? We want to hear from our College Planning fans!
Stay tuned next week when we take a look at The Student Loan Fairness Act.
Westface College Planning can help you navigate the college saving and funding process from start to finish. To learn how we can help you call us at 650-587-1559 or sign up for one of our Tackling the Runaway Costs of College Workshops or Webinars.
Photo Credit: Alan Cleaver
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